Housing in U.S. Poised to Worsen, Derivatives Show

[EJ]

Housing in U.S. Poised to Worsen, Derivatives Show
October 23, 2006 (Darrell Hassler and Hamish Risk - Bloomberg)

The slumping U.S. housing market is about to get a lot worse, according to traders of mortgage-backed securities and the so-called derivatives on which they are based.

The ABX index, which measures the risk of owning bonds backed by home-loans to people with poor credit, rose 30 percent since Aug. 9 to the highest since January. There are more than $500 billion of such notes outstanding.

The increase in the index shows traders expect mortgage delinquencies and foreclosures to increase at a time when the number of homes for sale as measured by the National Association of Realtors is at a 13-year high. The percentage of home-loan payments more than 60 days delinquent rose to 7.23 percent in July from 5.9 percent a year earlier, the fastest rate of increase since 1998, Moody's Investors Service said Oct. 17.

AntiSpin: Or you can ask the realtors what they think. For a mere $3,500 you can buy, "...a recent detailed study of 379 US metropolitan markets by a well-regarded Pennsylvania consulting firm, Moody's Economy.com, [that] says that while home prices are falling nationally, the worst may be over for Boston area homeowners. Prices may not rise any time soon, the study said, but they are probably not going to fall much further."

Sometimes I think I ought to start a new site called heydumbass.com. Except DOTSTER, INC. owns the domain and I'm not going to pay the guy a cent for it. Identifying stock, housing, or other market bubbles is about as hard as finding a banker after you've missed your mortgage payments for six months. You can not see them if you don't want to, but only for so long. The path of their collapse–whether stocks or houses–is as mysterious as a hangover after beer, wine, scotch, and gin. Even the timing of the end of stock and housing bubbles isn't so hard to estimate. What is truly hard to estimate is the willingness of market participants to believe the pitches of bubble product sales people who are as compelled to tell the truth as politicians running for office are to make promises they can keep. The duration and extent of denial is nearly impossible for even the cruelest imagination to conceive.

[Ishmael]

Re: Housing in U.S. Poised to Worsen, Derivatives Show

Eric:

I read things like that Economy.com about housing and want to yell, what are you brain dead or something. After a while I start wondering if everyone has become a pod person.

[DemonD]

Re: Housing in U.S. Poised to Worsen, Derivatives Show

A small "from the frontline" tidbit to add to this:

In my Los Angeles neighborhood, I of course check zillow to see what houses are being assessed at. And zillow shows you what houses have actually closed for. My neighborhood is decent, but not exactly beverly hills, mind you.


Here is the sale history from zillow:

04/20/2006: $715,000
08/05/1998: $125,000

This house is sandwiched between 2 big apartment complexes, and is one of the cheapest in the neighborhood.

Is it legal for me to post a link to a zillow chart here? I can give you the chart of zillow's estimate for this house plus the comparison to the average homes in this neighborhood.

Suffice it to say, my current job will not allow me to afford a home that is even close to this range (I figure I can comfortably afford 250k, and less comfortably 300k, and if i really hustle i could pull off a 350-400k home).

My friend who is a doctor recently put a bid on a house in Hermosa Beach for 765k. He told me the asking was 800k, and that about a year ago comp homes were pushing 1 million.

One of these days I'm going to get around to writing exactly what i see in my neighborhood, as I traverse many different areas in my life around LA.

I am not surprised about this report, nor was i surprised when you wrote about all the fraud in bubbles. I continue to wait for the other shoe to drop.

FYI, The Learning Annex is having another "Wealth Creation Expo" event headlined by Donald Trump in LA this fall. (Yes I went to one before; don't throw rocks at me.) I sometimes wonder how all the MLM-type "real estate guru" moneymaking schemes have contributed to all the RE bubbling and scamming that has happened in the past.

[nikki]

Re: Housing in U.S. Poised to Worsen, Derivatives Show

How about heyyoudumbass.com?

And Zillow is at least 10% high in Baltimore...they've got prices still leaping on some $300K homes over $12K a month!

[Kremhilde]

Re: Housing in U.S. Poised to Worsen, Derivatives Show

Hello Everyone,
I am new here, but just wanted to offer another very brief illustration of the housing situation in the Boston metropolitan area. After a stint in Hungary as a Peace Corp volunteer I returned to that area only to discover that I could afford nothing without searching considerably beyond the suburbs. I ultimately purchased a brick townhouse in Lawrence, MA for $55,000. It was in a depressed area, but while I was there things started coming around. In 2004 I was able to sell it for $130,000 EVENTHOUGH I had pretty much gutted the first floor for a rehab.
Now I put most of the proceeds in Exxon Mobil, and now I don't know what to do except to avoid buying a house! :-) I skipped the wintry business of the Northeast and am currently basking in Texas sunshine, but will be heading to the Washington/Oregon area soon because the summer heat here costs way too much in AC.
Just finished 'America's Bubble Economy' and could barely put it down, for it tied together and made sense of the disparate impressions of unreality that I had been perceiving in what was going on around me.
Cordially, Kremhilde

[sixpack]

Re: Housing in U.S. Poised to Worsen, Derivatives Show

Housing & Japanese Liquidity.

hi, first post from sunny London. Very interesting site. Read the stuff about respectful contributions, no abuse (what not even self-abuse ?) or demeaning comments. Will have to rely on carefully crafted innuendo in that case.
Anyhow, back to matters in hand.

A) the site hosts the article from the FDIC: 2006 Economic Outlook Roundtable:
Scenarios for the Next U.S. Recession by Ms Whitney

http://www.fdic.gov/news/conferences...k/whitney.html

who appears to put a strong case for the housing slow down to have a limited impact on the US - and televised commentators / Big Al appear to be suggesting a similar limited effect.
While my selfish interest lies in impacts on the insane UK (London) housing market I would be very interested in iTulip contributors' comments on Ms Whitney's work.
Q1) Does she have this right or is there a snowball effect waiting to happen ? I've not seen any comments on her work yet while the meltdown story appears to have wide agreement on this site.
While the meltdown sounds good in theory and explanation, the opinions here are quite one-sided.

Q2) Is there a way of assessing the impact of any US slowdown on the UK where I'm thinking of buying (for my own use !) ?

fyi - London property has gone insane again in '06. Another 10% hike in prices after a pause in '05 (and that's just on flats from converted victorian houses - most of which are just not done that well as the houses do not lend themselves to good conversion designs).
Looks like a lack of supply in popular areas but also strong buy-to-let interest support. USD600K for a two bedroom London flat just doesnt appear to be an obstacle to buyers so that amount doesnt buy you a good one in a good area; jobs situation is still good and lots of Eastern European immigration with the enlargement of the EU.

B) I read an explanation of Japan's delay in modest monetary tightening. Thought I would put it here as i hadn't seen it anywhere on the site yet. apologies if its old news. Apparently, the BOJ were ready to raise interest rates, but the MoF seeing that as undesirable, altered inflation calculations (remember the revision?). Removed some 30 or so expensive items and added some 24 cheaper ones to the inflation basket and hey presto, inflation was not running as high as had been announced (there's nothing like keeping politics out of monetary management, and it seems, this is nothing like keeping politics out of money management). Hence the ever so frightening .25% increase in their rates is thought to have been put off till 2007 (why would such a small increase cause a panic problem anyhow ?) and you have all written most eloquently of the subsequent re-launch of the yen carry-trade.

So, if Japanese money is such a huge trigger the question perhaps is when they might go ahead and raise their interest rates (over the Ministry of Finance's dead body it seems). Any opinions ? If this is likely to cause people to 'unwind positions' wouldnt this be more likely to create financial market problems ? Taking Ms Whitney's paper, the housing market might actually be a significant but small side-show to the actions following a Japanase rate hike.

Responses appreciated.

[spunky]

Re: Housing in U.S. Poised to Worsen, Derivatives Show

I cant comment specifically on japanese situation, to housing that is. I think alot of what you see is related to business in japan, not consumer loans. It is my understanding that the majority of a banks profit in japan are business based loans, not consumer ticky tacks like here. ATM fees, credit card tricks and such which reap huge profits for banks stateside with little risk.

So an increase in a banks prime rate influences,loans to a much greater degree, than when you are making ticky tack profits off ancillary services ??

[Jim Nickerson]

Re: Housing in U.S. Poised to Worsen, Derivatives Show

Housing & Japanese Liquidity.

hi, first post from sunny London. Very interesting site. Read the stuff about respectful contributions, no abuse (what not even self-abuse ?) or demeaning comments. Will have to rely on carefully crafted innuendo in that case.
Anyhow, back to matters in hand.

A) the site hosts the article from the FDIC: 2006 Economic Outlook Roundtable:
Scenarios for the Next U.S. Recession by Ms Whitney

http://www.fdic.gov/news/conferences...k/whitney.html

who appears to put a strong case for the housing slow down to have a limited impact on the US - and televised commentators / Big Al appear to be suggesting a similar limited effect.
While my selfish interest lies in impacts on the insane UK (London) housing market I would be very interested in iTulip contributors' comments on Ms Whitney's work.
Q1) Does she have this right or is there a snowball effect waiting to happen ? I've not seen any comments on her work yet while the meltdown story appears to have wide agreement on this site.
While the meltdown sounds good in theory and explanation, the opinions here are quite one-sided.

Q2) Is there a way of assessing the impact of any US slowdown on the UK where I'm thinking of buying (for my own use !) ?

fyi - London property has gone insane again in '06. Another 10% hike in prices after a pause in '05 (and that's just on flats from converted victorian houses - most of which are just not done that well as the houses do not lend themselves to good conversion designs).
Looks like a lack of supply in popular areas but also strong buy-to-let interest support. USD600K for a two bedroom London flat just doesnt appear to be an obstacle to buyers so that amount doesnt buy you a good one in a good area; jobs situation is still good and lots of Eastern European immigration with the enlargement of the EU.

B) I read an explanation of Japan's delay in modest monetary tightening. Thought I would put it here as i hadn't seen it anywhere on the site yet. apologies if its old news. Apparently, the BOJ were ready to raise interest rates, but the MoF seeing that as undesirable, altered inflation calculations (remember the revision?). Removed some 30 or so expensive items and added some 24 cheaper ones to the inflation basket and hey presto, inflation was not running as high as had been announced (there's nothing like keeping politics out of monetary management, and it seems, this is nothing like keeping politics out of money management). Hence the ever so frightening .25% increase in their rates is thought to have been put off till 2007 (why would such a small increase cause a panic problem anyhow ?) and you have all written most eloquently of the subsequent re-launch of the yen carry-trade.

So, if Japanese money is such a huge trigger the question perhaps is when they might go ahead and raise their interest rates (over the Ministry of Finance's dead body it seems). Any opinions ? If this is likely to cause people to 'unwind positions' wouldnt this be more likely to create financial market problems ? Taking Ms Whitney's paper, the housing market might actually be a significant but small side-show to the actions following a Japanase rate hike.

Responses appreciated.

I noted Ms. Whitney's paper earlier http://www.itulip.com/forums/showthr...=3558#post3558 and it really did not draw any comments directed as disputing what she related. Perhaps it was too counter to the general disposition here on iTulop, or perhaps those who saw it thought it too ridiculous to comment on it, or again because it was so long perhaps no one read it. Personally I do not know enough to suggest that in some way she must be wrong. The way the markets are going up, one cannot discount that she may be more correct that all those who expect gloom and doom.

If you haven't already seen it, http://www.itulip.com/forums/showthr...=3822#post3822 Pompoy is presumably a smart woman, so perhaps she is onto something, though today I think the existing homes report was negative, it seemed to cause the markets to go up, or something did.